BHP Billiton spent nearly $17 billion buying shale gas producer Petrohawk Energy and shale gas assets from Chesapeake Energy
This is going to be a gamechanger around the world and for BHP Billiton not to be part of it would be irresponsible, BHP petroleum chief executive Michael Yeager said in slides prepared for an investor presentation to allay concerns about the company's push into shale gas.
BHP said it plans to spend around $5.5 billion a year by 2015, about a billion more than previous estimates, and around 6.5 billion a year in 2020 on U.S. shale.
BHP's move this year into the relatively new and contentious energy source has worried some investors, particularly with U.S. gas prices depressed by the growing supply of gas from shale. CEO Marius Kloppers, however, has played down the concern, saying the group takes a multi-decade view on price.
Yeager said BHP expects to benefit from an increase in U.S. demand for gas, particularly as U.S. efforts to cut greenhouse gas emissions push more buyers to switch from coal to gas.
U.S. gas prices are expected to rise to over $6 per million British thermal units (mmBtu) by 2020, up from around $4 per mmBtu currently, he said.
Evy Hambro, investment chief for natural resources at BlackRock
Landowners in Arkansas and other shale gas producing areas have raised concern about the technique used to drill for shale gas, hydraulic fracturing or fracking, but BHP has said the technology is safe.
The technology used here has been proven and used for a long, long time, Yeager said of the fracking technique, adding that the shale gas industry is tightly regulated and even smaller players are unlikely to take shortcuts.
We are subject to inspection at any time ... I think the opportunity for the industry to cut corners at any level is small.
Yeager also highlighted the low costs, long life, and advantages of U.S. shale over conventional gas resources, saying that quantum leaps, in shale gas extraction technology have allowed the company to boost production.
BHP is targeting U.S. shale production of 545 billion cubic feet equivalent (90 million barrels of oil equivalent) in financial year 2012.
The shale gas projects are part of BHP's plans to spend $80 billion over five years on expanding production across its iron ore, coal, copper, uranium and petroleum businesses.
BHP's proximity to the U.S. Gulf of Mexico will also enable it to take advantage of liquefied natural gas export opportunities to Europe and Asia, Yeager said.
There is currently a wide differential between prices in the United States, which stand at around $4 per mmBtu, versus around $10 per mmBtu in Europe and $17 per mmBtu in Asia.
(Reporting by Rebekah Kebede in Perth, Sonali Paul in Melbourne and Narayanan Somsaundaram in Sydeney; Editing by Ed Davies, Himani Sarkar)